RELEASE: A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy

Washington, D.C. — As the nation recovers from Hurricane Sandy, the Center for American Progress today released “A Progressive Carbon Tax Will Fight Climate Change and Stimulate the Economy,” which puts forth criteria for putting a price on carbon that both combats the effects of global warming and grows the economy. This issue brief also describes how to design a system that meets these principles, discusses revenue collection, and recommends possible uses for the revenue.

As with most energy policies, the details of a carbon tax are critical to accomplishing its goals. A well-designed pricing system can create jobs, reduce greenhouse gas pollution, and have fair impacts across all regions and income groups. To ensure this positive outcome, the United States should adopt a carbon pricing system that embodies the progressive principles of fairness, environmental safety, and economic growth. The pricing system should:

Be a high-enough tax to affect pollution rates, increase over time, and be applicable to non-carbon-dioxide greenhouse gases such as methane. This would both ensure a continuing reduction in the release of carbon dioxide, and also encourage companies to move toward cleaner energies instead of different dirty ones.

Encourage businesses to make new investments in energy efficiency and renewable energy to reduce greenhouse gas emissions. This will stimulate the economy and put people back to work in the burgeoning clean-tech and green-jobs sectors.

Reduce—not increase—economic vulnerability of low-income households by ensuring that they are fairly compensated for any increase in energy prices.

Have appropriate mechanisms to protect existing American businesses and prevent so-called pollution leakage to countries without similar systems in place. Leakage occurs if highly polluting industries simply move to other countries that don’t have a comparable limit on pollution; in this way, they can continue business as usual without stricter environmental regulations. Leakage can also happen if domestic industries shut down, causing us to import goods from other countries.

The issue brief gives advice to Congress on three issues. First, we propose that Congress should set the price of carbon at a level that will lead to climate safety and that this price should rise over time. Second, the carbon tax will ultimately need to cover all major polluters, but it should be phased in to various sectors over time, starting with a tax on pollution from power plants. Third, the revenue needs to be directed to three uses: minimizing harm to vulnerable consumers and businesses, growing the economy with investments in clean energy infrastructure and other infrastructure that makes communities more resilient in the face of climate change, and reducing the deficit burden on future generations.